Most legacy SDLT avoidance schemes were designed to exploit unintended gaps in the SDLT legislation. A common example is a scheme that turned a single-step purchase of property into a multi-step transaction. By applying different SDLT exemptions to each step, the intended result was that no SDLT was payable on the overall transaction.
This type of scheme was central to the Project Blue case, in which the taxpayer tried unsuccessfully to combine the relief for sub-sales with the relief for alternative finance. It was defeated by HMRC.
Should I agree to use an SDLT avoidance scheme?
You should think very carefully and take independent legal advice if you have been offered an SDLT avoidance scheme and are considering using it.
SDLT planning schemes which serve no genuine commercial purpose are likely to be attacked and defeated. There are a number of reasons for this, including:
- An overall negative attitude of the judges to tax schemes
- SDLT anti-avoidance legislation that has been enacted over the past several years
- General Anti-Abuse Rule or GAAR
- Requirement to disclose the use of any tax schemes to HMRC
- HMRC’s more vigorous use of the tax penalty rules
There are still some SDLT schemes being marketed, but most are technically flawed and do not work.
A good practical rule of thumb when looking at an SDLT avoidance scheme is whether you would feel comfortable explaining as a witness in an SDLT appeal against HMRC why you entered into the scheme transactions.
What types of SDLT savings opportunities are left?
The attention of tax advisers in SDLT planning is now focused on legitimate things like maximising the available statutory SDLT reliefs, applying the statutory definitions correctly and avoiding falling foul of traps in the SDLT legislation.Examples include: maximising claims for Multiple-Dwellings Relief, applying the meaning of “dwelling” properly in order to fall within the lower Table B rates of SDLT (maximum 5%), claiming the lower rates for mixed use property and avoiding mistakes when claiming relief under the 15% corporate rate for dwellings or the 3% higher rates rules for additional dwellings.
Frequently Asked Questions
Be sceptical and take independent legal advice. Do not accept the scheme promoter’s reassurances that they have a counsel’s opinion supporting the effectiveness of the SDLT planning.
Some scheme promoters have their own pet counsel whose independence may be questioned, so get a second opinion from an unconnected adviser.
Even if you decide to use the planning, do not agree to pay any fees for it unless and until the final time limit for HMRC to investigate the scheme has expired without your use of it being challenged.
The type of SDLT advice that concentrates on finding a way through the highly technical nature of the SDLT rules. Generally, this means identifying an appropriate SDLT relief for property transactions, or exemption or reduction in rates for which a good, arguable case can be made out.
SDLT planning is now at a more basic level. Rather than using artificial steps inserted into a property transaction, it might simply involve identifying which of the 5 alternative rate tables should apply.
Patrick is authorised by the Bar Standards Board to do Public Access Work and litigation, which means that he can work directly with clients and deal directly with HMRC on their behalf. Patrick works on the basis of fixed fees agreed up-front via his Clerk and he does not use open ended hourly rates.
Are you interested in SDLT mitigation or have you been offered an SDLT avoidance scheme? If so, please contact Patrick Cannon here for an initial discussion about the options open to you.